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(c) The financing of leveraged buyouts of existing divisions of major or privately owned enterprises.
Thus, venture capital finance has the following features:
(1) It is basically equity finance in relatively new companies.
(2) It is long-term investment in growth-oriented small or medium firms.
(3) Venture capitalist not only provides capital but also business skills to investee firms.
(4) It involves high risk-return spectrum.
(5) It is a subset of private equity.
(6) The venture capital institutions have a continuous involvement in the business after making the
investment.
(7) Such institutions disinvest the holdings either to the promoters or in the market.

ADVANTAGES OF VENTURE CAPITAL
1. OPPORTUNITY FOR EXPANSION OF THE COMPANY
Venture Capital provides the company with an opportunity to expand. This would not have been
possible through other methods like bank loans.
Bank loans require collateral and there is an obligation to repay the loan. However, in venture
capital, the investors themselves are ready to take the risk as they believe in the company’s
long-term success.
2. VALUABLE GUIDANCE AND EXPERTISE
Besides capital financing, venture capital is also a source of valuable guidance, expertise, and
consultation. A member from the venture capital firm is usually appointed to the board of the
start-up company. This allows the active involvement of the venture capitalist in the company’s
decisions.
3. NO OBLIGATION FOR REPAYMENT
There is no obligation to repay the venture capitalist investors if the start-up fails or shuts down.
Hence, venture funding is essential for start-ups. It does not leave the start-up with the burden
to pay back as is the case with bank loans.
4. EASY TO LOCATE
It is very easy to find and locate VC within minutes, investors, as they are documented in various
directories. This reduces the time, efforts and money involved in searching venture funding. One
can find a VC quickly and efficiently. For instance, you can get a huge list of venture capital firms
by typing on any search engine.
DISADVANTAGES OF VENTURE CAPITAL
1. DILUTION OF OWNERSHIP AND CONTROL
Venture capitalist provides huge capital to the start-ups in return for a stake in the equity of the
company. If the start-up succeeds, then it helps them earn tremendous amounts of profit. VC’s
usually become a part of the Board. They actively participate in the company’s decision-making.
VC’s will want to protect their investments.
2. EARLY REDEMPTION BY VC’S
A VC may decide to redeem the investment within 3 to 5 years. Their primary focus is to earn
capital gains. Venture capital may not be suitable for an entrepreneur whose business plan will
take a longer time to provide liquidity.
3. LONG AND COMPLICATED PROCESS
The start-up company’s owner should first present a detailed business plan. Thereafter, the VC
analyses the business plan in detail. Then, a one-on-one meeting is conducted to discuss the
business plan in detail. Later, if the VC agrees to go ahead with the funding then due diligence is
done to verify the details. If the due diligence is found satisfactory then only the VC will offer a
term sheet. Therefore, venture capital funding is often found to be a lengthy process.